Addressing Nigeria’s Electricity Deficits Through Coal

Jun 19, 2013 | Articles

Nigeria’s electricity deficits have been well rehearsed in the last few years. With approximate installed power generation capacity of just over 9GW and peak generation capacity fluctuating around 4GW, power generation remains grossly inadequate to meet demand many times in excess of availability.

Constraints in fuel supply for new and existing power plants particularly gas which supports most of the country’s generation capacity has ensured that, before long, an enforced reconsideration of the energy mix becomes both necessary and unavoidable. It is this situation that has brought to the fore, the review of the use of coal as an additional source of fuel for power generation.

Coal was the major source of energy in Nigeria before the discovery of oil. It was also used to power electricity and to run the railways, then the mainstay of the nation’s transport system. In the late 1950s, this industry experienced a sharp and reduced decline in production. This was attributed to two main reasons. First, the bulk of the active coal production was from the mines in the then Eastern states. The three years civil war that ended in 1970 effectively paralysed both the railway system and, with it, coal production. Most of the mines were then shutdown and abandoned. Efforts to revive them after the war were tame and ultimately abortive. This occurred because of the second reason. The aggressive exploration of crude oil caused the government to steer the economy’s income base to the oil sector. The result was that the country’s energy supply became predominantly dependent on this one sector. This led to the “dieselization” of the railway which, effectively, crippled the one major off-taker that coal had. This, predictably, led to the extinction of what domestic market existed, at the time. It is fair to state that coal is not, currently, an officially nominated part of the country’s energy consumption mix. It does not figure in anyway in the contemplation of the country’s sources of energy despite references to its potential benefits, even at the highest levels of management in the power sector in the country.

Ironically, this shift carried dire consequences for the coal industry for reasons not connected to its viability. From both quality and availability perspectives, Nigerian coal was as well placed as any other coal-producing country in the world. Nigeria’s coal is largely sub-bituminous coal and lignite. Its typical characteristics are its low sulphur and ash content. It also has low thermoplastic properties, making it very attractive for power generation. Nigeria has about 22 coalfields spread over 14 states of the Federation, including Adamawa, Anambra, Bauchi, Benue, Cross-River, Edo, Enugu, Gombe, Imo, Kogi, Kwara, Nassarawa, Ondo and Plateau states. Coal mining in Nigeria started in 1906 and recorded an output of 24,500 tons in 1916. Production rose to a peak of 905,000 tons in 1958/59, a contribution of some 70% to commercial energy consumption. From that level, production plummeted, for the reasons already considered, to an all time last recorded production low of 2,712 tonnes in 2001. Between then and now, official production has ceased, completely. Current available information suggests that coal reserves, which can be described as proven – capable of being exploited in commercial quantities – so far, in the country, are about 639 million tonnes while the inferred reserves – resources present but with a less assured reliability of commercial recoverability – are about 2.75 billion tonnes. These consisting approximately of 49% sub-bituminous, 39% bituminous and 12% lignitic coals. This information comes from pre-JORC estimates available from historical geological data dating back to the 1950s. Contemporary exploratory work using modern day technology is vital not only to verify these resources but also to confirm, indeed, the truer and more accurate availability of the reserves. Analysis of the historical information – conducted over a quite limited area of Nigeria’s coal resources – have not been undertaken but clearly suggests that the reserves could be significantly more. At any rate, Nigeria’s coal qualities and quantities are such that it could have supported, quite conveniently, an alternative source of fuel for the various energy needs of the country for power and domestic heating. If nothing else, its qualities meant that it could have supported an increasingly demanding export market for coal to destinations made quite convenient by Nigeria’s geographical location. The shift away from coal all but effectively precluded this option. As an informed approach to stimulating this most important approach, it is critical that government formulates a strategy to initiate and encourage the occurrence of further exploratory work. This, it can achieve, by a combination of internal participation and collaborations with the private sector given the substantial capital outlay that this often demands.

From the regulatory oversight and sector co-ordination viewpoints, the nature and speed of Government intervention and participation may need further upward reconsideration. The Ministry of Mines and Steel Development (MMSD) was established in 1985 as an audacious but necessary attempt by the Nigerian Government to accelerate the rapid and beneficial development of the country’s solid mineral resources. Its main responsibilities include, amongst other duties, the regulation of the Solid Minerals sector by, amongst other tasks, the handling of the sale and usage of solid minerals in the country through the issuance of permits, licences, leases as well as collection of rents, fees and royalties.
In appreciation of the need to expand the energy mix and with the exploitation of coal in mind, Government, in the mid 2000s, decided to embark on a coal resource development programme. Under a United States Trade and Development Agency (USTDA) Grant Agreement dated 20 July 2004. The Federal Government of Nigeria commissioned US Mineral Industry Advisers, Behre Dolbear Group, to undertake a feasibility study aimed specifically at determining the potential of revitalizing the coal industry to supply coal for the power generation and to replace wood for domestic heating. Chiefly, the study was to evaluate available data and quantify coal resources in accordance with internationally accepted resource definitions; identify coal deposits that have the highest potential for near term development, utilizing world class coal mining practice; determine the potential of developing an economically viable coal mining and power generating industry to supply electrical energy to the Nigerian electrical grid; and develop the most effective strategies to revitalize the Nigerian coal industry. The Report was submitted in 2006. Quite crucially, within that study carried, Behre Dolbear projected that the electricity demand in Nigeria will rise to about 15GW in 2025 from the present 3.5GW, with coal providing over 6GW. This contribution from coal would, they suggest, amount to over 40% of the projected power to be generated. The Behre Dolbear study demarcated a number of the coal properties into concessions in order of potential and viability, which was then recommended for sale and eventually sold by a privatization process by the Bureau of Public Enterprises.
Since 2006, there has been appreciable movement in the power sector. Awareness within producers, regulators and consumers has increased ten-fold. Generation increased by roughly 1GW and infrastructure has improved substantially. Particularly, the NIPP project, a government-driven intervention plan to introduce short-term increase in generation of some 5.15GW remains on course to deliver those objectives. Concern if not disappointment remains because, for all the emphasis, commitment and expense, the level of growth in power output over the period remains inversely proportional to those efforts. Disappointment, especially amongst consumers, remains at a very high level. The problems giving rise to and perpetuating this situation remain intractable and continue to perturb. Huge challenges with transmission and fuel remain. This has, inevitably, heightened the coal “conundrum”.

Over the period, government’s response in the Solid Minerals sector has taken an appropriate approach. It is clear that appropriate momentum to engender the development of coal in Nigeria cannot happen without considerable private sector involvement and investment. Within sector regulation – an integral ingredient to investor involvement – government has sought to create a competitive business environment by defining its role to regulate the sector and introduce a legal regime for the acquisition, maintenance, transfer and termination of titles to mineral assets in Nigeria. This has led to the enactment of the Nigerian Minerals and Mining Act 2007 and the enabling Regulations of 2011. Further to enshrining a regulatory regime, the Mining Cadastre has been established. This is an autonomous institution and the sole legal agency that deals with all matters relating to the administration of Mineral Titles in Nigeria. It addresses the key issue of security of title by maintaining a Cadastral Atlas and Register of all mineral titles. From a technical perspective, Nigeria has completed a High Resolution Airborne Geophysical Survey involving magnetic; radiometric and limited electromagnetic surveys aimed at assisting and promoting mineral exploitation. The objective is to provide access to investors of airborne geophysical survey data of Nigeria with the intention of accelerating mining sector investments. Finally, Government has since introduced a beneficial financial incentives regime to encourage foreign and private sector interest that includes 100 percent repatriation of profits; provisions for 100 percent foreign ownership of mining concerns and power generation plants; infrastructure including road links, railways, deep ocean terminal, and jetties which are currently being upgraded; Export Processing Zones and Free Trade Zones and a national electric power grid that is expected to be upgraded, amongst other incentives.

But there are challenges and drawbacks. And these are huge but not insuperable. Successful interventions aimed at reducing or containing these will represent some of the most decisive and beneficial efforts to be made to develop coal in Nigeria. At the peak of these challenges remains the lack of decisive political will. The deficiency of fuller involvement by Government is still a considerable drawback to being able to link high-level pronouncements with proactive action. Hitherto, this has been the approach but the disadvantage is that this attitude undermines investor confidence. There are direct, effective interventions which, though capital intensive, will yield both greater investor interest and capital appreciation which government is not presently acting upon.

Infrastructure deficiency constricts the growth of coal development and discourages investors because of the corresponding necessity to expend resources on these deficits especially where they are necessary to complete production cycle. Poor power supply; poor transportation structure to support ore body transportation by road and rail; limited in-country availability of mining technology amongst many others, continue to constitute major constraints in developing coal resources. The lack of adequate and reliable data for investment purposes continues to discourage investor interest. Most geological information that is available for coal, though of continuing relevance, is obsolete, having being produced largely by the Geological Survey of Nigeria (GSN but now Geological Survey of Nigeria Agency) in the 1950s. Behre Dolbear has identified the necessity for considerable additional work to be done to fully explore coal resources and develop sufficient “proven reserves” to engender and support investment interest. This particular aspect is expensive but necessary because its outcome is usually fundamental to initiating and building investor confidence generally in the mining industry. Finally, the disappearance of mining, nationally, has meant that human capital and manpower development has suffered considerably. This means that there is almost a non-existent skills base upon which to build and will, almost inevitably, mean huge investments in training as well as importation of qualified labour.

Speaking at a 2009 Ministerial News Briefing, Dieziani Alison-Madueke (then Minister of Mines and Steel Development) observed that “Coal remains the most important fuel for power generation worldwide and it will remain so for decades to come”. This has remained the situation and will not change in the foreseeable future. Also at the inauguration of the Nigeria Mining Cadastre Office on 17 May 2011, the Minister of Mines and Steel Development, Musa Sada, also reiterated government’s resolve to fully exploit the potential of coal, when he said: “coal has been admitted into the nation’s energy mix as it would be used for coal-fired electricity power generating plants…”. Also on 31 May 2013, the Minister set up and inaugurated a 6-man committee on Coal to Power Generation. Its Terms of Reference include to collate and evaluate reports on Coal to Power initiatives; identifying assets of the Nigerian Coal Corporation that have not been privatized and develop a programme for fast-tracking the exploitation of coal for power generation. Government has demonstrated proactivity by this step although the absence of private sector presence in the Committee’s composition connotes a single dimensional perspective and, ultimately, output.

Coal is a major player in the world’s energy mix. It is arguably the most important fuel in the global energy mix and the second most consumed. Despite the environmental issues that have and will continue to be raised, it makes up 30.3% of the global energy primary needs and is used to generate over 42% of the world’s electricity. Coal constitutes 93% of the fuel used by South Africa to produce its electricity, 79% of China’s, 79% of Australia’s, 69% of India’s and 45% of the United States’ fuel sources for electricity. There are other significant features that make coal as a fuel extremely attractive and coal-fired power plants offering greater stability. Coal-fired plants have a much higher average load factor than many other much touted alternatives. Typically, coal-fired power plants provide base-load 24/7 electricity supply, as opposed to the more specific peak-load supply provided by more expensive and intermittent technologies. Electricity produced by coal as fuel is generally cheaper than any other fuel bar apart from hydro-generated electricity. Its availability in this country is sufficiently abundant to found a well coordinated investment and production effort yet its benefits remain inexplicably unexploited. Clearly, this “snub” of coal will, if not reversed, attain a level for potential embarrassment for us as a nation with huge, unmet demands for power.

Andrew Obinna Onyearu is a Lawyer and Energy Consultant

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